If you are a small business owner, then you're likely a very busy entrepreneur already using your time worrying about important business insights. Being the chief financial officer of your small business doesn't need to be part of your to-do list. CFO services for small businesses or medium-sized businesses are something that you can't ignore, but you might be able to delegate them.
Small businesses that don't want to handle tax services and tax planning, manage cash flow and accounting software, nor deal with the multitude of accounting responsibilities, can take all the finances off their plate by hiring financial experts. Count on someone else to be responsible for financial planning, reporting, and forecasting and consider virtual CFO services.
What Are Outsourced CFO Services?
Virtual CFO services offered are known by other names, depending on your internet search, including virtual CFOs, part-time CFO services, and fractional CFO services. Whatever your small business labels them, they're remotely delivered and professionally managed accounting services and help with your financial strategy. They exist to support you as the CEO so you know you're getting proper financial advice and are aware of both opportunities and dangers that might be lurking. Virtual CFOs should be your right-hand person in executing your financial goals.
Benefits of Outsourced CFO Services
What are the advantages of using outsourced services? There are plenty, but here are five, in particular, you should know.
- Reduced Expenses: A full-time CFO would need routine incentives and regular benefits. Virtual CFO services spare small business owners these expenses, as well as salary. Instead, you only pay for the services you need delivering to you.
- Expert Financial Advice: Outsourced CFOs often manage the financial affairs of business owners in different industries and sectors. That means they are very experienced in handling anything in a timely fashion.
- Flexibility: An outsourced CFO's hours might go up or down based on the specific demands of the organization. Also, you can pay for the products and time you need without sacrificing getting access to the knowledge, expertise, and experience that you require.
- Fraud and Mistake Mitigation: Some industries face specific regulations, be it HIPAA, HITECH, or other possibilities. Financial concerns are among the most heavily regulated parts of a business. Those who are familiar with advanced accounting techniques can save business owners money.
- A Glimpse into the Future: You can't know everything about the future, but you can sure forecast what's likely. An experienced CFO can chart various paths by understanding the cash flow statement better and coming up with a financial strategy and tax benefits, among other benefits.
Does Your Business Need an Outsourced CFO?
You should recognize the advantages a CFO can offer any business, starting with their financial expertise and financial analysis. However, when do you know your medium-sized business needs CFO services? There are three particular situations that might clue you in that it's time.
- High Levels of Revenue with Poor Balances: You might have a great top line but account balances that aren't as good. You might have too much payroll, you could be overpaying for things, there might be too many costs, or you just aren't charging high enough. The right CFO will sift through the data and compile things to illustrate potential moves that improve your situation. Your outsourced service professional will likely look to improve cash flow first and foremost by understanding financial statements and business operations.
- High Growth Is a Source of Stress: Hitting financial forecasts is important, but you want the right growth. Support staff might get overwhelmed with transactions and complaints, and might find that your production and shipping teams responsible for core products and services are also getting worn down. Your business might not have enough space for things, and operation times from point A to B takes too long. The right CFO can dig through the forensic evidence to identify problems and bottlenecks but also solutions.
- Financing or Funding Is Necessary: You might be in a position for explosive growth but a lack of liquidity is holding you back. You might know that you need cash, but you aren't sure what your best financing option is. An effective CFO can weigh options from loans to VC funding.
Another way of determining whether or not you can use outsourced services isn't based on specific situations, but simply on the size of your organization. Just keep in mind that these are general guidelines and not hard rules you have to follow.
- Sole Proprietor or Startup Without Much Revenue: If there's not a lot of money flowing just yet, then one-time CFO consulting services might make more sense than a long-term partnership or committed contracting.
- $1 Million in Revenue: Many small businesses that generate over a million dollars in revenue have achieved a good threshold for outsourcing their CFO services. In some cases, you might do it at half that. The real situation is when your company is hungry to get financial insights and use them to move past what they've already achieved.
- $50 Million in Annual Revenue: This should be the general ceiling for outsourced or virtual CFO services and when you start looking at having your own full-time position. Businesses of this level have more complex financial needs.
5 Main Outsourced CFO Services
Knowing when to hire a CFO is one thing. What should you expect of them when you do? Here are five primary CFO outsourced services.
1. Reporting on KPIs
Key performance indicators might not relate directly to money, but they might illustrate how well your company is doing. A CFO might be like a physician taking the vitals of a patient to see how healthy they are. Examples can range from inventory levels to profit margins.
2. Planning Your Cash Flow
A negative cash flow might happen in the early stages of starting things up. Otherwise, it's a bad situation to be in. A CFO makes sure you stay in positive cash flow, but they'll also make sure that your organization is utilizing things correctly. Your growing business needs to spend some profit building up staff and infrastructure for long-term growth. A CFO will also look into minimizing expenses, such as ordering higher amounts of things than in the past to get costs down.
3. Compiling Your Dashboard
A lot of the work a CFO does is tracking metrics so they know what's going on in your business. They also need to tell you the stories they see but in ways, you can easily understand without your own CPA. Dashboard compilation should put all the crucial KPIs into a format you can glance at and they can walk you through them. It might be an actual digital dashboard, but it could also just be a routine report that they deliver to you.
4. Help You with Financing
Business financing is a serious topic and a finance department may not solve it, but a qualified CFO can. Financial systems are a complicated topic for anyone, and hiring an outsourced CFO may be the solution. You might need capital and cash to fund and fuel your expansion. However, every option might have downsides you need to navigate. Government resources can have serious strings attached, loans might carry high-interest rates or collateral needs, and VC funding might mean giving up a stake in your business. Let your CFO help you weigh your options.
5. Advising You
CFOs dig into data and find it if they need it. From there, they can advise you based on that data in certain ways. Forecasting scenario planning is a crucial aspect of their work. By forecasting likely scenarios, you can create plans that deal with the most likely future events that can happen. Always be ready to ask them what they think when they deliver data and forecasts.
What Outsourced CFO Services Typically Don't Include
While outsourced services might include the things listed above, there are things they typically don't involve.
- Shouldering the burden of every legal matter on their own
- Administrative or human resources matters, including insurance, benefits, and hiring or firing outside of finance staff
- Being a single-stop for handling all investor relations
Having said that, you might be able to get an outsourced CFO to handle such matters. However, you need to make it clear you want that, and you need to be prepared to pay for such services and negotiate the specific contract terms.
How Much Does an Outsourced CFO Cost?
You get what you pay for. Having said that, you can find an effective virtual CFO service for your small business for under $1,000 each month. If you need full service with a lot of premium features, then your monthly cost could easily hit $10,000 each month. The advantage here is that you can scale the services to what you specifically need and can realistically afford.
That price range might seem like a lot, but you need to take it from the perspective of what an actual CFO would cost you. An in-house Chief Financial Officer of notable skill and talent would run you at least $150,000 per year. Many make as much as $500,000. Is that realistic for a small business?
At a fraction of the total cost of hiring a full-time CFO internally, you can access the very same high-caliber financial services and expertise by using a virtual CFO. Your need for their services will hopefully grow as your business does, but you'd be able to scale up along the way.
Outsourcing this can save you money in many ways. Since they work virtually or remotely, you'll need minimal overhead. They also only focus on the specific tasks that are necessary.
How to Find Professional CFO Services?
How do you find professional CFO services? That's a five-step process.
- Identify Your Business Goals: The best-outsourced CFO should be a bandage for just not having such a professional. You will want financial plans and a direction that you choose. Do you want to watch a company thrive? Are you looking for certain financial results and net income? Would you like to pass your business on to your family? These are all legitimate but different goals.
- Conduct Your Search: Doing an online search makes sense for two reasons. First, it gives you access to lots of reliable data. Second, your outsourced CFO might work virtually or remotely online anyway. Use several search terms, including contract CFO, fractional CFO, interim CFO, CFO services, outsourced CFO, and virtual CFO. Try to determine at least three candidates to interview so you can do comparison shopping.
- Pay Attention to Reviews: Reviews will tell you more than what previous clients thought of any particular CFO. They can also tell you just how experienced such a professional is. You can look at the dates mentioned and see how long they've worked and how long they worked at particular places. Their resume will always make them look good, but honest feedback from prior businesses they worked for can be very enlightening.
- Check Qualifications: At a minimum, any CFO should have the Certified Public Accountant designation. That requires a collegiate or university degree and passing all four parts of the examination series. Just over half of all those who try actually pass every part. A CFO might also have additional designations. Forensic accounting and business valuation are two examples of particular experience or knowledge that might serve your small business well.
- Prioritize the Services You Need: Identifying your goals isn't enough. You need to also decide which specific goals are higher priorities than others. Are you just looking to get any CFO to handle things because you have none to start with? Or do you need help in a particular area, such as managing cash flow or understanding your financial statements? How much control over the strategic side of things will you give your CFO?
Outsourcing CFO services can save a business owner over a full-time CFO, but they also make sure that your firm has effective financial management and leadership. Reporting, forecasting, and planning help you know where you are and also chart where you are going. If you'd like to explore outsourced CFO services in Chicago that Lewis.CPA offers, then contact us right away.